ITC Q2 preview: Cigarette, hotel, FMCG biz to aid profit; margins may slip

Analysts will monitor the demand outlook on rural as compared to urban, competitive intensity, raw material trends, hotels & agri business outlook

The cigarette-to-hotel conglomerate ITC is set to announce its July-September quarter (Q2) results for financial year 2024-25 (FY25) on Thursday, October 24. The brokerages tracked by Business Standard expect ITC's net profit to rise 1.95 per cent in the quarter ended September on an average to Rs 5,023.13 crore as compared to Rs 4,927 crore a year ago. On a sequential basis, the PAT is expected to rise by 2.15 per cent.

The revenue for the September quarter is pegged at Rs 17,710.13 crore on an average as compared to Rs 16,394 crore a year ago which implies a rise of 8 per cent. On a quarter-on-quarter (Q-o-Q) basis the revenue is estimated to grow 5 per cent.

 

The rise in revenue and PAT can be attributed to healthy growth in cigarette, hotel, and FMCG businesses.

Meanwhile, analysts and investors will keep an eye out for the demand outlook on rural as well as urban, competitive intensity, raw material trends, hotels, and agribusiness outlook.

Here's how brokerages expect ITC to fare in Q2:

Axis Securities: Analysts at Axis expect a 7 per cent revenue growth in the second quarter. On a year-on-year basis (Y-o-Y), they expect the cigarette business to grow 6 per cent, FMCG to grow 7 per cent Y-o-Y, hotels to grow 10 per cent, and agri to grow 15 per cent. Conversely, the paper business is expected to see a decline.

Overall revenue is pegged at Rs 17,609 crore in the quarter under review as compared to Rs 16,394 crore a year ago, which translates to an increase of 7.4 per cent.

Additionally, Earnings before interest, tax, depreciation, and amortisation (Ebitda) margins are expected to decline Y-o-Y on account of subdued performance of its paper board business.

Overall, Ebitda is estimated to come in at Rs 6,262 crore, up 3.6 per cent Y-o-Y, as compared to Rs 6,042 crore.

Meanwhile, Ebitda margins are expected at 35.6 per cent for the quarter under review as compared to 36.9 per cent a year ago.

Kotak Institutional Equities: The brokerage expects cigarette volume growth at 3 per cent Y-o-Y (akin to 1Q), translating to a 7 per cent growth in net cigarette sales as compared to 6 per cent in 1QFY25 and 10.1 per cent in 2QFY24.

Analysts at Kotak estimate cigarette Earnings before interest, tax, and amortisation (EBIT) to grow 5 per cent Y-o-Y.

Overall, EBIT is expected to come at Rs 5,828.8 crore as compared to Rs 5,628.4 crore a year ago.

However, EBIT margins are estimated to decline 115 basis points (bps) Y-o-Y and 135 bps Q-o-Q, due to some inflation in leaf tobacco and other inputs but partly mitigated through improved mix, cost management and calibrated pricing.

In the FMCG segment, Kotak estimates 6.5 per cent Y-o-Y growth in revenue as compared to 6.3 per cent in 1QFY25 and 8.3 per cent in 2QFY24 with no major sequential price adjustments.

ITC's agri business is expected to grow 15 per cent Y-o-Y. However, paper boards growth is expected to decline 4 per cent Y-o-Y due to tough operating conditions.

Nuvama Institutional Equities: As per the brokerage, ITC's cigarette volumes are likely to grow 2.5 per cent Y-o-Y, 2.7 per cent in Q1FY25 and 4 per cent in Q2FY24. A slight compression in margins can be seen due to raw material inflation.

Meanwhile, FMCG sales are expected to grow 7 per cent Y-o-Y, 6.3 per cent in  Q1FY25 and 8.3 per cent in Q2FY24.

In the hotel segment, sales are likely to grow 12 per cent Y-o-Y, 10.9 per cent in Q1FY25 and 21.2 per cent in Q2FY24. Agri sales are likely to grow 5 per cent Y-o-Y and profit growth to come back.

Conversely, ITC's paper business is forecasted to experience pressure with a 5 per cent Y-o-Y contraction. Overall, gross margin is likely to expand 18 basis points (bps) Y-o-Y to 57.5 per cent, whereas Ebitda margin is estimated to decline 137 bps Y-o-Y to 35.1 per cent.